Asian Development Bank’s (ADB) Board of Directors has approved a loan of $65 million equivalent to strengthen and expand Nepal’s electricity transmission and distribution facilities in a bid to cut network losses and reduce frequent supply interruptions and outages. Years of underinvestment in electricity infrastructure has left Nepal with one of the most unreliable power supplies in South Asia, putting a brake on the country’s economic growth.

Funds will also be used to upgrade two hydropower plants, introduce compact fluorescent lamps, and install solar and solar-wind powered streetlights in a push to boost energy efficiency, increase the use of clean renewable technologies, and take some of the strain off the national grid. Public-Private franchising partnerships will be developed in selected urban areas to improve service quality to consumers, providing a model that could be replicated in future.

The Energy Access and Efficiency Improvement Project will support the Government of Nepal’s long-term vision to provide universal coverage using grid-based and off-grid supplies by 2027. Installed generating capacity at the end of 2008 was 615 MW with just 33% of households connected to the national grid.

“The project will strengthen and increase supply capacity, increase consumer connections, improve the finances of the state-owned Nepal Electricity Authority, and eventually allow for increased cross-border energy trade, giving the economy a boost,” said Priyantha Wijayatunga, Energy Specialist in ADB’s South Asia Department.

An estimated 20,000 additional households are expected to directly benefit from the distribution improvements, while all 1.5 million grid-connected electricity consumers will receive more reliable power supplies. The installation of 1,000 solar and solar-wind streetlights in municipal areas of Bhaktapur, Kathmandu and Lalitpur will improve safety, particularly for women and children, while the project is expected to reduce an estimated 15,000 to 20,000 tons of carbon dioxide emissions annually.

ADB’s loan from its concessional Asian Development Fund covers 69% of the project cost of $93.7 million. The loan has a 32-year term, including a grace period of 8 years. Interest is charged at 1.0% per annum during the grace period and 1.5% per year for the rest of the term.

Grants totaling $4.5 million from the Climate Change Fund and Multi-Donor Clean Energy Fund, administered by ADB, will also be provided. The Government and Nepal Electricity Authority will supply the balance of $24.2 million. Nepal Electricity Authority is the executing agency for the project which is due for completion around September 2014.